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Firm network structure and innovation

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  • Chuluun, Tuugi
  • Prevost, Andrew
  • Upadhyay, Arun

Abstract

This study examines how various dimensions of a firm's network affect innovation and pricing of innovation by market participants. We use board interlocks to build interfirm network and construct different network measures to capture firm centrality in the interfirm network, cohesion within firm network, and diversity, innovativeness, and propinquity of firm network. Our results show that these different characteristics of network connectedness affect firm innovation input and output, particularly for firms in relatively intangible industries. These results are robust to the use of an instrumental variables approach as well as a natural experiment of state-level changes in R&D tax credits. We also find that innovation has a positive (negative) marginal effect on corporate bond yield spreads when firms have lower (higher) connectedness, suggesting that the market perceives innovative activities by more connected firms as less uncertain. Yield spread changes around patent filings further support this finding.

Suggested Citation

  • Chuluun, Tuugi & Prevost, Andrew & Upadhyay, Arun, 2017. "Firm network structure and innovation," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 193-214.
    • Handle: RePEc:eee:corfin:v:44:y:2017:i:c:p:193-214
    DOI: 10.1016/j.jcorpfin.2017.03.009
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    More about this item

    Keywords

    Network; Connectedness; Innovation; R&D; Board interlock; Bond yield;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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